10 financial questions every board member should ask
Sara Wilson |
I’ve never seen a board member job description that says “don’t be a bobble head” but they should. I strongly advocate for board members to think critically and ask questions. In fact, board members have a legal responsibility–the Duty of Care–to make informed decisions, meaning they need to gather facts and ask questions to get clarity to make sound governance decisions.
Fiscal oversight is one governance responsibility of being a board member. This includes setting and approving financial policies, approving the budget and ensuring organizational finances advance the mission. It is a critical board responsibility but financial reports are often glossed over with little discussion possibly because many board members feel unqualified to comment or ask fiscal questions.
Here are 10 questions every board member should ask about finances:
- Do board members understand our financial reports?
- Will there be a budget surplus or deficit? Why?
- Are income sources rising or falling? What are the reasons for this trend?
- How has revenue changed? What other changes can be expected?
- Are expenses, especially salary and benefits, under control and comparable to other organizations?
- Are our salaries competitive?
- Do we have financial reserves sufficient for at least 6 months of operations?
- Is cash flow projected to be adequate? How is it monitored?
- How do actual revenue expense figures compare to budget? Are there policies in place regarding variances and budget revisions?
- Is the financial plan consistent with the strategic plan?
A few years ago MWA uncovered significant misuse of funds by an organization’s executive and associate director. In 20 years of working with nonprofits and assessing organizational practices it is the only case of blatant misuse of funds I have discovered. There were warning signs: one was that the executive was consistently defensive when board members asked questions about finances and repeatedly stated the finances were in his domain and the board should just trust him. Here’s a good resource to help you recognize signs of trouble: Are the Red Flags Waving?
Do you see any warning signs at your organization?